Review of initial eligibility or the continuing qualification of DCOs to clear swaps As clearing of certain swaps becomes compulsory under law, the DCOs that clear those

swaps must be subject to rigorous organizational, conduct of business and prudential requirements. These requirements should reflect the new risks associated with clearing a swap and, if applicable, differing DCO membership. In addition, a DCO should have adequate internal systems, operational and administrative procedures, and should be subject to independent audits and disclosure requirements, including for example margin calculations. ISDA has separately commented on these and related issues, and we refer the Commission to our letters on governance and conflicts of interest for DCOs and on DCO financial resources⁶.

6 These two ISDA comment letters can be found respectively at http://isda.org/speeches/pdf/CFTC-NPR-Comment-Letter-111610.pdf and http://www.isda.org//speeches/pdf/CFTC-Comment-CCP-Financial-Resources.pdf

ISDA

As noted above, the Commission’s review of DCOs should be proportional to the range of products the relevant DCOs clear, including the volume and risk characteristics of the products cleared. This also has implications for the determination of which DCOs are of systemic importance. That is to say, by virtue of its central role, a large DCO is likely to be a critical component of the market it serves. Consequently, the failure of such a DCO would probably result in a systemic event for the financial system.

As a related matter, the Commission’s review of DCO eligibility should also take into account possible future market dominance and thus not ‘crystalize’ market standards or infrastructure which in the future may prove imprudent.

The Commission has proposed in Rule 39.5 that DCOs benefit from a presumption of eligibility to clear a swap that falls within a group, type, class, or category of swaps that the DCO is already authorized to clear. To some extent the issues raised by this proposal depend heavily on how broadly the Commission ultimately construes the terms such as

“group” or “category”. Even under a limited construction, however, this presumption may prove inappropriate. The best example of this would be a presumption that because a DCO clears liquid single name CDS (i.e. standard coupons and liquid tenors on names with good price visibility), then its risk metrics, pricing and historical data are adequate to support the clearing of a CDS of much longer tenors, or on different much less liquid underlyings.

Such a presumption may lead to swaps being cleared that the DCO is unable to risk manage properly, the consequences of which would be to decrease the stability and soundness of such DCO.

Conclusion

The public policy rationale for the Dodd-Frank Act is to reduce risk, increase transparency and promote financial market stability by, inter alia, imposing a clearing requirement on swaps when the Commission determines that such requirement would be consistent with the five factors specified in the Dodd-Frank Act. ISDA believes that public policy is best served by the Commission interpreting these criteria strictly given the risks and

alternatives tools available.

ISDA appreciates the opportunity to provide these comments. Should you require further information, please do not hesitate to contact the undersigned.

Sincerely,

Robert Pickel

Executive Vice Chairman

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ISDA's submission to the CFTC – Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade dated February 13, 2012

February 13, 2012

Mr. David A. Stawick Secretary of the Commission

Commodity Futures Trading Commission Three Lafayette Center

1155 21^st Street, NW.

Washington, DC 20581

Re: CFTC RIN 3038-AD18 – Process for a Designated Contract Market or Swap Execution Facility to Make a Swap Available to Trade

Dear Mr. Stawick,

The International Swaps and Derivatives Association (“ISDA”), the Securities Industry and Financial Markets Association (“SIFMA”) and the Futures Industry Association (“FIA”)¹

appreciate this opportunity to provide comments to the Commodity Futures Trading Commission (the “Commission”) regarding the recently released notice of proposed rulemaking and request for comments (“NPR”) concerning the process by which swaps will be made “available to trade”

and the implementation of the related statutory provisions enacted by Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Dodd-Frank Act”), which amends the Commodity Exchange Act (the “CEA”).

1 ISDA’s mission is to foster safe and efficient derivatives markets to facilitate effective risk management for all users of derivative products. ISDA has more than 800 members from 58 countries on six continents. These members include a broad range of OTC derivatives market participants: global, international and regional banks, asset managers, energy and commodities firms, government and supranational entities, insurers and diversified financial institutions, corporations, law firms, exchanges, clearinghouses and other service providers. For more information, please visit: www.isda.org.

SIFMA brings together the shared interests of hundreds of securities firms, banks and asset managers. SIFMA’s mission is to support a strong financial industry, investor opportunity, capital formation, job creation and economic growth, while building trust and confidence in the financial markets. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association. For more information, visit www.sifma.org.

The FIA is the primary industry association for centrally cleared futures and swaps. Its membership includes the world’s largest derivatives clearing firms as well as exchanges and clearinghouses from more than 20 countries. The FIA seeks to promote best practices and standardization in the cleared derivatives markets, provide policymakers with an informed perspective on the derivatives markets, and advocate for the interests of its members, its markets and its customers. The FIA strives to protect open and competitive markets, protect the public interest through adherence to high standards of professional conduct and financial integrity, and promote public trust and confidence in the cleared markets. For more information visit” www.fia.org.

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The designation of a swap as “available to trade” will have broad ramifications for the market because such a swap will no longer be permitted to trade on a bilateral basis. As a result, an incorrect designation of “available to trade” would result in a decrease in liquidity, increase in costs and a decrease in the availability of hedges. The goals of the Commission and the Dodd-Frank Act would therefore be best served if the determination of what swaps are "available to trade" are made by the Commission, based on careful and studied analysis that includes a finding of sufficient market liquidity. We note that the rules related to swap execution facilities

(“SEFs”) have not yet been finalized and our comments might be affected by the final SEF rules.

Executive Summary

The following comment letter focuses on five topic areas: Process, Factors to Consider, Reviews, Economically Equivalent Swaps and Effective Date. Below is a brief summary of some of our key points.

1. Process - The Commission should make the determinations of which swaps are "available to trade". If swap execution facilities or designated contract markets (“DCMs”) make the initial determination, the process should include a six month period for Commission review before a submitted swap is made "available to trade" that will include an

opportunity for public comment. A SEF/DCM should be required to list and support trading in a swap before the SEF/DCM may submit the swap as "available to trade".

2. Factors to Consider – Liquidity should be a prerequisite for a swap to be made "available to trade". The submitting SEF/DCM should provide detailed reasoning for its

determination and specific supporting evidence of any valid factors considered.

3. Reviews – Swaps that are "available to trade" should be reviewed more frequently than annually and SEF/DCM participants/members should be able to submit swaps for review as no longer "available to trade".

4. Economically Equivalent Swaps – We ask that the Commission clarify the purpose of this rule as efforts to evade mandatory trade execution can be dealt with under existing anti-evasion authority. In the alternative, the definition of an "economically equivalent swap" should be based on fungibility, rather than "material pricing terms".

5. Effective Date – If the Commission does not establish a six (6) month review period, we recommend that the trade execution requirement take effect as of six (6) months after the later of (1) the applicable deadline for the clearing requirement, or (2) the date on which the swap is made "available to trade".

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